Investors hold most net shorts on Treasuries in 18 months -JPM

Reuters Staff

3 Min Read

NEW YORK, Dec 13 (Reuters) - The margin on bearish bets on longer-dated U.S. Treasuries over bullish positions surged to its widest level in about 1-1/2 years in advance of the Federal Reserve’s last policy meeting of 2016, according to a J.P. Morgan survey released on Tuesday.

Traders widely expected the U.S. central bank to raise short-term interest rates by a quarter point at its two-day policy meeting due to begin later on Tuesday, prompted by an improving jobs market and signs of rising inflation.

Benchmark 10-year Treasury yields reached 2.528 percent on Monday, their highest since September 2014, as inflation worries intensified following an agreement among major oil producers to cut output, propelling crude prices to an 18-month high.

Uneasiness about inflation from a possible package of fiscal stimulus under a Trump administration has underpinned the jump in longer-dated U.S. yields since the Nov. 8 election.

On Tuesday, the 10-year yield was last at 2.460 percent, down 2 basis points from late on Monday but up about 60 basis points since Trump’s presidential victory.

The share of “long” investors who said they were holding more longer-dated U.S. government debt than their portfolio benchmarks fell to 11 percent after being at 14 percent for three straight weeks, J.P. Morgan said in the survey conducted on Dec. 12.

The share of “short” investors, who said they were holding fewer longer-dated Treasuries than their benchmarks, jumped to 39 percent from 27 percent last week, J.P. Morgan said.

Short investors outnumbered long investors, or net shorts, by 28 percentage points, the biggest difference since June 28, 2015 and a jump from net shorts of 13 percentage points a week ago.

The share of “neutral” investors, who said on Monday they were holding amounts of longer-dated Treasuries that match their benchmarks, fell to 50 percent from 59 percent, J.P. Morgan’s survey showed. (Reporting by Richard Leong; Editing by Meredith Mazzilli)